European stocks closed higher yesterday as banks gained after results at Goldman Sachs relieved investors, and as markets braced for a rate cut by the US Federal Reserve.
The FTSEurofirst 300 index of top European shares rose 0.9 per cent to close at 834.84 points, near the day's high and the first gain in four sessions.
The index has lost more than 44 per cent this year, hurt by a credit crisis that has helped push several major economies into recession.
Banks in Europe added most to the benchmark index. BNP Paribas, Banco Santander, Deutsche Bank and UBS rose between 1.8 and 5 per cent.
Goldman Sachs posted its first quarterly loss since going public nine years ago, although some investors had expected even deeper losses and its shares rose 8.6 per cent on Wall Street.
Downbeat US economic data may strengthen the case for a rate cut.
US consumer prices plunged for a second straight month during November, according to a government report yesterday that is likely to fan fears that economic recession is rapidly heightening risks of deflation.
Meanwhile, new US housing starts and permits also plunged to record lows in November.
"The investment universe is still being driven by economic news from the US," said Henk Potts, strategist at Barclays stockbrokers. "Data continues to disappoint. Markets are hoping for action from the incoming President, Barack Obama."
The Dow Jones, S&P 500 and Nasdaq Composite were up between 1.4 and 2.6 per cent as European bourses were closing.
Back in Europe, defensive stocks were some of the best gainers, with GlaxoSmithKline ending 1.7 percent higher and Sanofi-Aventis gaining 3.3 per cent.
Mr Potts said: "We're advising investors to go into drugs and telecoms, as they are defensive: large companies that have strong stable cashflows, that will outperform against this economic backdrop."
Électricité de France was the top-weighted gainer in the index, up 3.1 per cent after reports it is close to buying half of the nuclear assets of Constellation Energy Group for $4.5 billion.
Most oils rose, tracking a gain in crude prices, up more than one per cent to more than 45 a barrel on hopes Opec will cut output today. Total, ENI, and Royal Dutch Shell, rose between 1 and 1.7 per cent.
Miners were the biggest negative weight on the index, as metal prices slipped.
Antofagasta, BHP Billiton, Rio Tinto and Xstrata fell 1.8 to 3.6 per cent. Lonmin slipped 3.3 per cent ahead of its demotion from the FTSE 100 and the FTSEurofirst 300 indexes after Friday.
On the macro side, investors got a bit of relief, with the eurozone Services PMI for December coming in at 42 compared with forecasts of 41.2, while the manufacturing PMI came in at 34.5 compared to forecasts of 34.3.